The latest exercise in Washington burlesque ended yesterday, when House Republicans agreed to pass the Senate's two-month payroll tax holiday extension and the Democrats who run the Senate agreed to appoint negotiators to work out a year-long extension. The best you can say about this political melodrama is that it's over.
President Obama will take a victory lap, and he played his hand well if cynically. The two-percentage-point payroll tax holiday has done nothing to lift the economy this year, and it won't matter in 2012. As Milton Friedman taught us, temporary tax changes don't lead to permanent changes in consumer, taxpayer or business behavior.
The only potential job creator in the Senate bill is the plank requiring Mr. Obama to make a decision in 60 days on the Keystone XL pipeline. And he might ruin that by killing the pipeline to please his rich green supporters who think you can power a modern economy with windmills, solar cells and switchgrass. But at least now he'll have to decide before the election, and if Mr. Obama kills the pipeline he might doom a Democratic Senator or two.
The
only purpose of this tax holiday was political, and the House Republican mistake was falling into the President's trap. They let him pose as a tax-cutter while they put on their pointy accountant hats and talked about "the Social Security trust fund," as if such a thing contains real money. The better strategy was to extend the payroll holiday, get something in return, and then talk about how Mr. Obama wants to push the economy off his multiple tax-increase cliff in 2013.
Republicans do need to fight for their priorities, but it helps to pick the right fights. They should return in 2012 ready to make their differences clear on taxes, health care, regulation, and how to grow an economy.
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